Do Stock Mergers Create Value for Acquirers ?

  title={Do Stock Mergers Create Value for Acquirers ?},
  author={Pavel Savor and Lu Qi},
This paper finds support for the hypothesis that overvalued firms create value for long-term shareholders by using their equity as currency. Any approach centered on abnormal returns is complicated by the fact that the most overvalued firms have the greatest incentive to engage in stock acquisitions. We solve this endogeneity problem by creating a sample of mergers that fail for exogenous reasons. We find that unsuccessful stock bidders significantly underperform successful ones. Failure to… CONTINUE READING
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Firm size (ME) is calculated as the market value of its equity as of market close two trading days before the merger is announced. Book equity is computed as in Cohen, Polk, and Vuolteenaho

exogenous reasons
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